Market Update

European Central Bank (ECB) Update
The European Central Bank (ECB) held its key lending rate steady at 3.75% during Thursday’s meeting, aligning with market expectations. The decision reflects the ECB’s assessment of the medium-term inflation outlook. While high wage growth has been offset by reduced profit margins, the Bank expressed concerns over elevated domestic price pressures, persistent services inflation, and headline inflation exceeding the 2% target until at least 2025.
ECB President Christine Lagarde emphasized that the September rate decision remains undecided and reiterated the Bank’s commitment to a data-driven approach. Markets reacted mutedly to the announcement, as a rate pause had already been priced in.
UK Economic Insights
Recent data from the UK paints a mixed economic picture. Unemployment held steady at 4.4% for the three months ending in May, with regional variations: the East Midlands recorded the highest rate at 5.6%, while Northern Ireland had the lowest at 2.0%.
Wage growth figures also garnered attention. Core pay rose by 5.7% in the three months to May, the slowest pace since mid-2022. Despite the slowdown, wage growth continues to outpace the 2% inflation rate, raising questions about whether the Bank of England (BoE) will delay its anticipated August rate cut to September. Policymakers may wait for clearer signs of a cooling labour market before easing monetary policy further.
Meanwhile, UK retail sales fell by 1.2% in June, reversing May’s 2.9% increase. The decline was driven by weak performance in department stores, clothing shops, and furniture retailers, with petrol stations excluded. Factors such as post-election uncertainty, poor weather, and reduced foot traffic were cited as contributing to the dip in consumer spending.
Japan
In Japan, core inflation rose for the second consecutive month in June, climbing to 2.6% from May’s 2.5%, though it narrowly missed the expected 2.7%. The increase was fueled by a 7.7% rise in energy prices and reduced utility subsidies. Additionally, service inflation edged up to 1.7% in June from 1.6% in May, as businesses passed rising labour costs onto consumers. Policymakers are set to decide on potential interest rate changes during their meeting on July 30-31.
Cyber Outage Disrupts Markets
A global cyber outage on Friday disrupted operations across multiple industries, denting investor sentiment. The issue was reportedly caused by a product update from cybersecurity firm CrowdStrike, whose stock fell 11.1% by the end of trading. Although the outage was brief, it highlighted the vulnerabilities of systems deeply reliant on cybertechnology, prompting a temporary dip in share prices across various sectors.
US Political and Economic Developments
In a significant announcement on Sunday, President Joe Biden stated he would not seek re-election in November, citing concerns about his performance and campaign viability. He also acknowledged fears that surviving an assassination attempt could bolster support for Donald Trump. Biden endorsed Vice President Kamala Harris, who is emerging as a frontrunner for the Democratic nomination with strong backing from senior party members.
The announcement has sparked a surge in donations to the Democratic Party, reflecting voter optimism. Markets typically approach political uncertainty with caution, but Harris’ potential candidacy might reassure investors if she is perceived as continuing Biden’s policy agenda, offering a sense of predictability.
US Inflation and Market Reaction
In the US, inflation data provided a positive surprise. Consumer Price Index (CPI) for June showed a year-over-year increase of 3%, down from May’s 3.3%, driven by lower gasoline prices and moderating rents. Core CPI, excluding volatile food and energy prices, rose 3.3%, slightly below the forecasted 3.4%.
The data bolstered optimism for potential Federal Reserve rate cuts. Fed Chair Jay Powell reiterated the need for sustained positive data before cutting rates, but markets remain hopeful for a reduction later this year. In response, investors reallocated funds from big tech to smaller companies, anticipating broader benefits from lower rates.